Academic journal article Journal of Accountancy

Offers in Compromise

Academic journal article Journal of Accountancy

Offers in Compromise

Article excerpt

Offers in compromise are not new. However, as previously noted in the Journal of Accountancy (see "IRS Gets New, More Flexible Guidelines on Offers in Compromise," Aug. 92, page 33), the Internal Revenue Service has placed new emphasis on these offers and is encouraging appropriate taxpayers to compromise their tax liabilities.

COLLECTIBILITY

Offers in compromise will be available only if there is a question on the IRS's part as to the collectibility of the taxes owed (and if the IRS believes it is collecting what is reasonably collectible). Thus, there must be some doubt as to the ability to collect the assessed sums, usually evidenced by some form of insolvency.

COMMENCING THE OFFER

The taxpayer must initiate the first specific proposal for compromise. If the offer is a viable solution to a taxpayees situation, the IRS employee assigned to the case will discuss this alternative with the taxpayer, and may even assist him or her in preparing the required forms.

Offers in compromise are submitted on Form 656, Offer in Compromise. An offer should include all outstanding liabilities for all outstanding years; it cannot be partial or piece-meal. The identification of these liabilities should be specific and complete, with all contingencies disclosed. In addition, a taxpayer submitting an offer in compromise must be in compliance with all filing and payment requirements for periods not included in the offer, including estimated taxes and tax deposits.

Either form 433-A (for individuals) or 433-B (for businesses) also must be completed and submitted. The purpose of these forms is to indicate to the IRS the taxpayer's present and potential sources of income and what the taxpayer owns and owes.

ADMINISTRATIVE REVIEW

Once submitted, an offer will be reviewed to determine whether the offer reflects the collectibility from the taxpayer's 'assets and future income.

Income. There is no fixed percentage of a taxpayer's present or future earned or unearned income that will determine whether an offer is accepted. The issue is basically how much of a taxpayer's income is (or will be) realistically available to pay the delinquent taxes. A taxpayer's education, profession or trade, age and experience, health and past and present income will be considered. Generally, ira taxpayer offers the net realizable equity in his assets and the present value of five years of future income (less necessary living expenses), the IRS will seriously consider accepting the offer. …

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